The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian hotels have warned that their market share in a key visitor demographic could “dwindle to less than 19 per cent” were the initial Value-Added Tax (VAT) proposal to be implemented, Tribune Business can reveal.

A presentation given to Bahamas Hotel and Tourism Association (BHTA) members on April 3, which has been obtained by Tribune Business, suggests that this nation has already ‘priced itself’ out of 65 per cent of the middle-aged couples market in the key New York and South Florida areas.

Reiterating that ‘stopover’ traveller choices about where to vacation have become increasingly price sensitive, the BHTA presentation hammered home the message that raising prices to cover the impact of VAT and other taxes, plus ever-increasing operating costs, would result in reduced visitor numbers.

The presentation drew on a survey of 500 New York and Miami/Fort Lauderdale residents, aged between 35 to 54 years, that was conducted by MMGY Global last year for the Nassau/Paradise Island Promotion Board.

The survey, focusing on respondents with an annual household income of $85,000 and who had not visited the Bahamas for two years but remained interested in doing so, was intended to measure consumer price sensitivity to price changes when it came to hotel, airline and ground transfer price changes.

Basing these on a couple staying for four nights in the Bahamas on an all-inclusive package, the survey found that the collective $2,097 cost was more than 65 per cent of those surveyed were willing to pay.

Thus, with the Bahamas’ high vacation costs restricting it to just a 35 per cent share in a key demographic for its core US east coast markets, the BHTA appears to have calculated that VAT at 15 per cent would slash this further - to just 19 per cent.

It is unclear whether 15 per cent VAT will translate into an automatic 15 per cent increase in stopover visitor prices and costs, especially as the original plan called for hotels to enjoy a 10 per cent concessionary rate on rooms and food and beverage.

Still, the BHTA said in an e-mail to its members yesterday: “Research shows potential market share dwindling to less than 19 per cent with VAT as proposed versus more than twice that share for low-cost competitors.”

Data from Smith’s Travel Research and an Internet airline prices showed that the costs for a Bahamas vacation, based on the MMGY survey demographic, were lower than only Barbados and the US Virgin Islands when it came to the Caribbean.

And the Bahamas was 24 per cent more expensive than the region’s low-cost leader, the Dominican Republic, whose combined airfare and hotel rates stood at $1,585.

Aruba, Jamaica and Cancun were all cited as lower cost destination than the Bahamas, leading the BHTA to yesterday state: “[Bahamas] vacation can cost at least 25 per cent more than growth destinations.”

Some of the findings contained in the MMGY Global report were previously referenced by BHTA president Stuart Bowe in a column written for Tribune Business.

Still, the presentation reinforces the tourism industry argument that it has reached a ‘tipping point’ in terms of price, and the implementation of VAT and further tax increases could push it over the edge.

These ‘dark clouds’, the BHTA added were coming at a time when the Bahamas was well-positioned for growth, via the potential to capitalise on the $2.6 billion Baha Mar project and other new product, plus recent infrastructure improvements.

The number of visitors saying they would recommend a Bahamas vacation to others had grown by around five percentage points for each of Paradise Island, Cable Beach and the Family Islands in the decades to 2013.

And the Bahamas was “the most frequently-mentioned island destination” among a survey of 1,000 consumers asked to mention such a location within five hours of the US, attracting 726 ‘mentions’- more than double those received by its nearest competitor, the US Virgin Islands.

Yet the BHTA yesterday warned that these improved indicators were being “hampered by price concerns”.

Drawing on the MMGY survey, its presentation warned: “Apart from interest in visiting other Caribbean destinations and a lack of interest in visiting the Bahamas, cost factors (lodging, airfares and food) are the primary reasons for respondents not considering Nassau/Paradise Island for a leisure trip.”

While 57 per cent were more interested in other experiences, some 31 per cent of respondents to the MMGY survey said hotel accommodation was too expensive, and 28 per cent said likewise when it came air fares. Another 22 per cent said food costs were too expensive.

Summing up the findings, the BHTA told its members yesterday that the findings “illustrate the challenges which the industry presently faces, which could be compounded by tax policies being considered by Government.....

“This underscores the strength of our overall product but underscores consumer price sensitivities.”